Productivity Convergence and International Openness

Bank of England Working Paper No. 77

71 Pages Posted: 3 Jun 1998

See all articles by Stephen J. Redding

Stephen J. Redding

Princeton University

James Proudman

Bank of England, Monetary Instruments and Markets Division

Date Written: March 1998

Abstract

There is a strong partial correlation between openness and rates of productivity growth across UK manufacturing sectors. The paper investigates the relationship more formally, within a theoretical model of productivity catch-up. The model identifies three potential effects of international openness: openness may affect (a) domestic rates of innovation, (b) the quantity of technological know-how that may be transferred from the frontier to the less advanced economy, (c) the rate at which this technology transfer occurs. From the theoretical framework, an econometric equation is derived which is used to estimate the relationship between UK productivity growth, the UK-US productivity gap and the degree of international openness. International openness is found, primarily, to affect the rate of productivity convergence, and this relationship is robust to the inclusion of information on R&D intensity, human capital, unionisation and capacity utilisation.

JEL Classification: F14, O33

Suggested Citation

Redding, Stephen J. and Proudman, James, Productivity Convergence and International Openness (March 1998). Bank of England Working Paper No. 77, Available at SSRN: https://ssrn.com/abstract=94947 or http://dx.doi.org/10.2139/ssrn.94947

Stephen J. Redding (Contact Author)

Princeton University ( email )

Princeton, NJ 08544-1021
United States

HOME PAGE: http://www.princeton.edu/~reddings/

James Proudman

Bank of England, Monetary Instruments and Markets Division ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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